Nov. 21–FREE TRADE SUCCUMBS TO POLITICS: President Bush is jeopardizing America’s long-term economic health by using protectionist trade policy to further his quest for a second term in the WhiteHouse.
Problems with European trading partners over U.S. steel tariffs ruled illegal under international commerce rules were exacerbated substantially this week by an inexplicably ill-advised administration decision to restrict clothing imports from China.
Mounting fears of an increasingly protectionist Bush regime helped send the dollar’s value to a record low against the euro currency Tuesday and is believed to have discouraged much-needed capital inflows into the U.S. economy during September.
The decision on China apparel curbs likely was motivated by clothing industry complaints and concern about continuing charges by political adversaries that imports were costing millions of U.S. jobs. In the case of Chinese clothing, however, the potential political payoff in votes is miniscule compared with the massive damage the president is risking to the overall U.S. economy.
The products affected by the restrictions so far this year have amounted to barely 5 percent of overall Chinese apparel sales in the United States expected in 2003. Meanwhile, the number of U.S. textile jobs ostensibly protected by the move also is relatively small when viewed in the context of the action’s possible harm to the entire U.S. economy.
The administration seems to have forgotten that trade with China isn’t a one-way street. Americans enjoy inexpensive goods from China, and the U.S. economy depends on China as a growing market for our exports, which soared nearly 20 percent last year and made China our fastest-growing export market.
Trade, however, isn’t the only consideration. Picking trade fights with commercial allies also threatens our ability to finance the growing twin trade and budget deficits with foreign capital. China, for instance, holds about $120 billion in Treasury securities. If it decided to dump a significant amount of these holdings in retaliation for U.S. hostile trade actions, it could roil global financial markets, force the United States to pay higher interest for foreign borrowing to fund our shortfalls, and thus short-circuit the economic expansion.
Protection fears also likely affected foreign investors in September, when capital inflows from overseas plunged 90 percent from August, to just over $4 billion. This was about $37 billion short of funding September’s trade shortfall and was the lowest capital inflow from abroad since 1998, when the near collapse of the Long Term Capital Management hedge fund nearly required a bailout to avoid an international financial crisis.
Federal Reserve chairman Alan Greenspan probably had memories of 1998 on his mind when he warned Thursday of “creeping protectionism” being a greater threat to the U.S. economy than financing the trade deficit. Globalization makes it easier for the United States to deal with its current account deficit, but Greenspan told a monetary conference that protectionism could neutralize this safety valve.
The damage is minimal so far, but the world’s early reactions to presidential protectionism send a serious warning of how grave the consequences could be if unbridled political ambition continues to trump sound progressive trade policy at the White House.
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(c) 2003, The Kansas City Star, Mo. Distributed by Knight Ridder/Tribune Business News.
